I interviewed Daniel Farias who discussed his views on the trend towards near shoring in Mexico.
State of global economy and impacts on near-shoring
NAFTA is a positive thing. Daniel doesn't believe Brazil will be the next major supplier to the US because while it is closer to the US compared with China, you are still dealing with ocean transportation, fluctuation of fuel costs, drayage etc. Mexico is closer to the US. It is easier to import from Mexico to the US. A major concern involving sourcing in Mexico or any South American country is that of quality. As long as you have a good company and partner in Mexico and you do your due diligence you should be able to source in Mexico without any major problems.
You can either view the glass as half empty or half full. Daniel likes to see things from the positive side. He believes the US had a bad habit of over extending through credit which resulted in extra funds. The idea of changing cars every few years or changing houses every few years doesn't help. Americans are starting to realize the nature of the market today. The issues in Greece, Spain and even Brazil (which has decreased their index several times this year and may not even get a 2.5% increase in their economy this year) is a major problem. However, it is a good sign for the US because if other economies are going on this path there is a possibility to get more jobs back to the US market and doing things in a different way.
You can bring more jobs closer to home. Some large corporations are looking at ways to bring jobs back to the US. They look at the cost of shipping and if the costs increase to a certain level it would make sense to bring more jobs closer to the US. Near-shoring in Mexico would bring more transportation and logistics jobs, as well as related industries.
Moving from China to Mexico
Daniel knows of a few companies who have tried to move from China to Mexico, due to the increase in shipping costs and the issue of lead time compared with Mexico. However, the US has invested so much in China that to go to another market and do the same thing will take a long time. While Mexico was a major player for the US economy 15-20 years ago, today the mentality of the workers in China is very different. The dynamic is very different. It will take some time and a change in mentality in Mexico and other countries in South America. This is a major disadvantage.
Proximity to the US is also an advantage of Mexico. With labor costs increasing in China a lot of companies are considering Mexico. Near-shoring in Mexico will present new options. The cost of shipping from Mexico to Milwaukee may cost $1200. However, ocean transportation from China to Milwaukee may be around $4500 not including fees and duties.
You can also find a lot of people who are able to speak English in Mexico. The cultural familiarity is also an advantage.
Finding the right talent in Mexico
Daniel believes that South American and Central American companies have a tendency to say they can do everything. The way the economies and bureaucracies work in those countries it is very hard to have one “go to guy”. You might have a handful of contacts who can help you on the ground. However, it is hard to have one person or solution for everything.
About Daniel Farias
Daniel is originally from Brazil and started his career working for AT&T in the supply chain function. He moved from Brazil to Italy to work on a project where he revamped the supply chain and implemented changes within 4 months. After this he moved to the US in 2003-2004. He worked with EGL which today is called Ceva. His worked involved supply chain management for a joint-venture with Cummins and several plants in China, Japan, Turkey and the UK. In 2007 Daniel started as a sourcing buyer and now is also a transportation buyer at Echo Engineering and Production Supply. He also started his own consulting company called P3 Consulting & Sourcing Solutions, LLC where he helps companies to do business in Brazil as well as other places around the world. He actually works with companies in Indiana who are looking to buy and sell products in Brazil.
Founder at P3 Consulting & Sourcing Solutions, LLC
Sourcing Buyer at Echo Engineering and Production Supply